Wednesday, December 30, 2015

Marx on Wages in Value, Price and Profit (1865)

Marx’s Value, Price and Profit was a series of lectures he delivered in 1865, even though it was first published in 1898.

In this work, Marx has the following to say about the determination of wages in capitalism:

(1) “I might answer by a generalization, and say that, as with all other commodities, so with labor, its market price will, in the long run, adapt itself to its value; that, therefore, despite all the ups and downs, and do what he may, the working man will, on an average, only receive the value of his labor, which resolves into the value of his laboring power, which is determined by the value of the necessaries required for its maintenance and reproduction, which value of necessaries finally is regulated by the quantity of labor wanted to produce them.

But there are some peculiar features which distinguish the value of the labouring power, or the value of labor, from the values of all other commodities. The value of the laboring power is formed by two elements—the one merely physical, the other historical or social. Its ultimate limit is determined by the physical element, that is to say, to maintain and reproduce itself, to perpetuate its physical existence, the working class must receive the necessaries absolutely indispensable for living and multiplying. The value of those indispensable necessaries forms, therefore, the ultimate limit of the value of labor. On the other hand, the length of the working day is also limited by ultimate, although very elastic boundaries. Its ultimate limit is given by the physical force of the laboring man. If the daily exhaustion of his vital forces exceeds a certain degree, it cannot be exerted anew, day by day. However, as I said, this limit is very elastic. A quick succession of unhealthy and short-lived generations will keep the labor market as well supplied as a series of vigorous and long-lived generations.

Besides this mere physical element, the value of labor is in every country determined by a traditional standard of life. It is not mere physical life, but it is the satisfaction of certain wants springing from the social conditions in which people are placed and reared up. The English standard of life may be reduced to the Irish standard; the standard of life of a German peasant to that of a Livonian peasant. The important part which historical tradition and social habitude play in this respect, you may learn from Mr. Thornton’s work on Over-population, where he shows that the average wages in different agricultural districts of England still nowadays differ more or less according to the more or less favorable circumstances under which the districts have emerged from the state of serfdom.

This historical or social element, entering into the value of labor, may be expanded, or contracted, or altogether extinguished, so that nothing remains but the physical limit. ....

By comparing the standard wages or values of labor in different countries, and by comparing them in different historical epochs of the same country, you will find that the value of labor itself is not a fixed but a variable magnitude, even supposing the values of all other commodities to remain constant.” (Marx 1913: 115–119).

(2) “These few hints will suffice to show that the very development of modern industry must progressively turn the scale in favour of the capitalist against the working man, and that consequently the general tendency of capitalistic production is not to raise, but to sink the average standard of wages, or to push the value of labor more or less to its minimum limit. Such being the tendency of things in this system, is this saying that the working class ought to renounce their resistance against the encroachments of capital, and abandon their attempts at making the best of the occasional chances for their temporary improvement? If they did, they would be degraded to one level mass of broken wretches past salvation. I think I have shown that their struggles for the standard of wages are incidents inseparable from the whole wages system, that in 99 cases out of 100 their efforts at raising wages are only efforts at maintaining the given value of labor, and that the necessity of debating their price with the capitalist is inherent to their condition of having to sell themselves as commodities. By cowardly giving way in their every-day conflict with capital, they would certainly disqualify themselves for the initiating of any large movement.

At the same time, and quite apart from the general servitude involved in the wages system, the working class ought not to exaggerate to themselves the ultimate working of these every-day struggles. They ought not to forget that they are fighting with effects, but not with the causes of those effects; that they are retarding the downward movement, but not changing its direction; that they are applying palliatives, not curing the malady. They ought, therefore, not to be exclusively absorbed in these unavoidable guerilla fights incessantly springing up from the ever-ceasing encroachments of capital or changes of the market.” (Marx 1913: 124–126).

These passages do show that Marx in Value, Price and Profit did think that capitalism has a tendency to reduce wages towards the “value of labor” which is “more or less to its minimum limit.” The market price of labour, whatever the rises and falls caused by supply and demand – still converges towards the value of labour-power.

But the point is that Marx did not think that the “value of labour-power” was identical throughout every economy, and he did not hold that it is simply determined by the bare physical necessities to allow people to live and have children. Rather, he admitted a “historical and moral element” to what determines the “necessary wants” in some nations so that there could be differences in the “subsistence wage” or value of labour-power. This was partly determined by the historical and pre-capitalist standard of living and how the proletariat arose in each country in historical terms.

But even so “the ultimate limit is determined by the physical element,” and Marx seems to think that capitalism drives wages towards a level that is made up of (1) the “physical element” and (2) whatever additional commodities that the “historical and moral element” in each country can continue to add to a bare physical minimum even under capitalism.

12 comments:

He made the same point in "Capital" volume 1 -- and in this he simply repeated Ricardo and Smith. In other words, poverty was a relative concept and so dependent on what society you are in.

Also, because he talks of value of wage-labour as a commodity being dependent on the value of the goods which reproduce a worker, you can have situations in which the value of wages decreases but wages increase. So there are feedback loops which make it hard to generalise -- although Marx, of course, did so.

Finally, this position in the 1860s is in direct contradiction to his position of the 1840s. Back then it was a case of workers being driven into absolute poverty, wages always becoming driven to the minimum, etc.

This was his position in "The Communist Manifesto". In "The Poverty of Philosophy" he attacked Proudhon at one point for suggesting that workers gained something from economic growth -- but 20 years later, the "historical" element appears. No shame in changing your mind -- there is shame in not admitting it (particularly if you mock someone for holding the position you latter come to agree is right!).

You may find the section "Marxist Political Economy" of "Modern Capitalism and Revolution" by Cornelius Castoriadis of interest in terms of Marx's theories on wages and their limitations:

"No shame in changing your mind -- there is shame in not admitting it (particularly if you mock someone for holding the position you latter come to agree is right!)."

That would be my main criticism of Marx. He was actually not a very systematic thinker. His theoretical work was shot through with polemic and it suffered greatly for it. Most of his ideas were simply borrowed. In the piece that is analyzed in the blog post he pretty much just cites Ricardo at every turn, for example.

BUT... and it is a big but... he was a far more powerful thinker than most of those that he engaged in political (rather than theoretical) polemic with. When he was debating the likes of Weston he was miles ahead. And his empirical examples were typically strong.

I think that you've taken this work out of context and have thus missed the point.

This speech was a rebuttal to John Weston. Weston argued that if wages rose it would be harmful to the economy -- I believe his mechanism was through a currency depreciation. Marx argued that a rise in wages would not be harmful to the economy. We can therefore conclude that Marx did not think that there was any fundamental reason why wages cannot rise and gave support to early trade union initiatives to increase wages. It was these initiatives that ultimately paved the way for rising living standards in the 20th century.

"We can therefore conclude that Marx did not think that there was any fundamental reason why wages cannot rise and gave support to early trade union initiatives to increase wages."

(1) he supported trade union struggles for wage rises, yes, but he gives his clear verdict on the long-run problems with this in the very passage I quote above:

"I think I have shown that their struggles for the standard of wages are incidents inseparable from the whole wages system, that in 99 cases out of 100 their efforts at raising wages are only efforts at maintaining the given value of labor, and that the necessity of debating their price with the capitalist is inherent to their condition of having to sell themselves as commodities. By cowardly giving way in their every-day conflict with capital, they would certainly disqualify themselves for the initiating of any large movement.

At the same time, and quite apart from the general servitude involved in the wages system, the working class ought not to exaggerate to themselves the ultimate working of these every-day struggles. They ought not to forget that they are fighting with effects, but not with the causes of those effects; that they are retarding the downward movement, but not changing its direction; that they are applying palliatives, not curing the malady"

His views here are very clear: trade union activity might and probably does help in the short run, but in the long run, grand scheme of things it is bound to fail to keep wages from continuously rising, given the nature of capitalism.

(2) You say "Marx did not think that there was any fundamental reason why wages cannot rise" -- true. I don't deny it. This is just a straw man.

However, if by that statement you mean Marx thought wages would rise well above the value of labour-power, keep rising and greatly increase living standard for workers in capitalism, this is just modern Marxist apologetic nonsense.

In both Value, Price and Profit and vol. 1 of Capital Marx is clear: capitalism brings a tendency for wages to tend to the value of maintenance and reproduction of workers, even if a “historical and moral element” adds some additional commodities in some countries.

Moreover, Marx's failed, flawed and cultish apocalyptic view of capitalism's effects (so obviously related to wages) is right here at the end of vol. 1 in the “Historical Tendency of Capitalist Accumulation” chapter:

"Along with the constantly diminishing number of the magnates of capital, who usurp and monopolise all advantages of this process of transformation, grows the mass of misery, oppression, slavery, degradation, exploitation; but with this too grows the revolt of the working-class, a class always increasing in numbers, and disciplined, united, organised by the very mechanism of the process of capitalist production itself. The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralisation of the means of production and socialisation of labour at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.” (Marx 1906: 836–837).

There is also Engels' notorious statement in Herr Eugen Dühring’s Revolution in Science (1894; first published in 1878) that capitalism "restricts the consumption of the masses at home to a famine minimum.” (Engels [1894]: 308):

Yes, and all those particular criticisms can be subsumed under my general criticism above: he was a polemical thinker who politicised his theoretical work too much. He added in elements from his polemics into his theory that did not sit comfortably.

Example: from this piece he should have concluded that with laws like the ten-hour workday living standards might rise with class struggle. But instead he ignored this and cited a mystical "long-run" because he believed strongly in the communist cause.

But as one of Ricardo's only real proteges in mid-to-late 19th century England he was undoubtedly one of the foremost economists of his day. His ideas, however, were largely derivative.

I wouldn't be as quick to toss out Marx-the-economist. His work is of immense historical interest.

There's also some very nice passages in this piece that are worth investigation (as opposed to the simplistic negativism LK tends to cast upon authors he has determined, a priori, that he dislikes). Example:

"Reduced to its abstract form, Citizen Weston's argument would come to this: Every rise in demand occurs always on the basis of a given amount of production. It can, therefore, never increase the supply of the articles demanded, but can only enhance their money prices. Now the most common observation shows than an increased demand will, in some instances, leave the market prices of commodities altogether unchanged, and will, in other instances, cause a temporary rise of market prices followed by an increased supply, followed by a reduction of the prices to their original level, and in many cases below their original level."

"But most of your posts focus on trying to "catch" certain arguments that you disagree with."

No, they don't. If you've bothered to read the blog, you'd see I am doing a chapter by chapter analysis of all of vol. 1 of Capital. In those posts I point out positive things about Marx and analyse the theory on its own terms before turning to criticism.

Regarding Foucault, a man who tells you there is no objective truth and that all truth is made by power (1) cannot say anything true and (2) is peddling a bizarre and insane conspiracy theory comparable to any Alex-Jones style conspiracy.

Why do we think the Holocaust happened? Is it only because it is a truth made power? If so, what power system made it? If you take Foucault's sh*t philosophy seriously it would quickly degenerate right into anti-Semitic conspiracy theories.

"From our friend Weston's standpoint this is an unsolvable riddle. Looking somewhat deeper into this matter, he would have found that, quite apart from wages, and supposing them to be fixed, the value and mass of the commodities to be circulated, and generally the amount of monetary transactions to be settled, vary daily; that the amount of bank-notes issued varies daily; that the amount of payments realized without the intervention of any money, by the instrumentality of bills, cheques, book-credits, clearing houses, varies daily; that, as far as actual metallic currency is required, the proportion between the coin in circulation and the coin and bullion in reserve or sleeping in the cellars of banks varies daily; that the amount of bullion absorbed by the national circulation and the amount being sent abroad for international circulation vary daily. He would have found that this dogma of a fixed currency is a monstrous error, incompatible with our everyday movement. He would have inquired into the laws which enable a currency to adapt itself to circumstances so continually changing, instead of turning his misconception of the laws of currency into an argument against a rise of wages."

Right. Marx had an understanding of endogenous money. This doesn't prove he was one of the "most interesting economists of the 19th century", certainly not on monetary theory. Why? Because Marx was a metallist. He was an adherent of the flawed, false metallist theory of money. He thought -- wrongly -- that money needed to be tied to metals like gold.

Moreover, endogenous money was already well known to the Banking school well before Marx's ramblings in Capital.Moreover, demand-side explanations already appeared in Malthus too (e.g., Keynes took great inspiration from Malthus). Even more, the Birmingham School already had a proto-Keynesian analysis of markets. Thomas Attwood and even Marshall understood quite well what we now call debt deflation.

You're ignoring the massive errors and flaws in Marx's work, many of which stem form the rotten foundation: the LTV.

Furthermore, Marx took and incorporated fundamental ideas on endogenous money right from Thomas Tooke. See Smith, Matthew. 2004. “Thomas Tooke’s Legacy to Monetary Economics,” in Tony Aspromourgos and John Lodewijks (eds.), History and Political Economy: Essays in Honour of P.D. Groenewegen. Routledge, London. 57–75, specifically at 62–65.

These insights do not prove any great originality and you even admit it above when you say: "many of his ideas were simply borrowed".